Like normal human bronchial epithelial (NHBE) cells, an SV40 T antigen gene transformed line, BEAS-2B, undergoes squamous differentiation when incubated in fetal bovine serum (FBS)- or transforming growth factor type beta-1 (TGF-beta-1)containing medium. BEAS-2B subclones, S.6 and R.1, that are sensitive and resistant to induction of squamous differentiation by FBS/TGF-beta-1, respectively, differ from R.1 cells with respect to several properties in addition to the ability to be induced to undergo squamous differentiation. These differences include levels of epidermal growth factor (EGF) receptor mRNA and transforming growth factor-alpha (TGF-alpha) mRNAs, and the effect of TGF-beta-1 on the levels of plasminogen activator (uPA) and plasminogen activator inhibitor type-1 (PAI-1) mRNAs. Instead of squamous differentiation, NHBE cells recapitulate most of the features of mucociliary cells if they are inoculated onto the deepithelialized luminal surface of a rat trachea, which in turn is xenotransplanted subcutaneously (s.c.) into a nude mouse. When inoculated onto "tissue equivalent" structures, made by incorporating human fibroblasts into collagen type I gels which are incubated until fibroblast-caused contraction of the gel has concluded, they begin to synthesize neutral and acid mucin within 2 weeks but no cilia have yet been detected. In addition, the mucin-synthesizing cells do not undergo squamous differentiation when TGF-beta-1 is added to the medium. Finally, a mitogenic activity/putative "autocrine growth factor" has been detected in medium conditioned by NHBE and S.6 cells. It is heat stable and smaller than 3 kD.